Steel firms question price index for iron ore trade
Mainland companies worry over reliability and transparency of Platts pricing information
Bloomberg in Shanghai
Mainland steelmakers, the world's biggest iron ore buyers, are questioning the reliability of the main industry price index for ore provided by Platts, expressing concerns about transparency and trading volume.
"We are sceptical because we don't know the size of the deal samples and how they work out the indexed prices," said Wang Liqun, deputy general secretary of the China Iron & Steel Association. "If the daily price is based only on one deal a day, can you trust it?"
The mainland started its own spot trading platform last year, introducing a weighted average daily price in March. Much of the global trade, valued at about US$180 billion, continues using Platts, the publisher of energy prices, which was raided this month as part of a European Commission oil price-fixing investigation. It became the leading price index after producers including Vale and Rio Tinto Group scrapped annual contract price talks in 2010.
Market participants including Jiangsu Shagang Group, the mainland's largest non-state-owned mill, have questioned whether buyers are sometimes paying too high a price.
Shen Wenming, vice-president of Jiangsu Shagang, said: "We found the indices often dropped slower when the spot market falls, while it always rises quicker when the spot rates move up. Indexed pricing dominates the market. Steelmakers don't have a say but to follow."
Platts, owned by McGraw Hill Financial, publishes benchmark prices used by the oil industry. It also assesses the cost of raw materials from coal to power, liquefied natural gas, shipping rates and iron ore. Platts said two weeks ago that it was co-operating with the EC's investigation, which also includes BP, Royal Dutch Shell, and Statoil.
Keith Tan, Platts's managing editor for steel raw materials in Singapore, said: "Iron ore pricing has evolved quickly over the past few years. The quality of the information we obtain is key, and we've emphasised on considering transactions, bids and offers that are verifiable, transparent and firm."
Platts continuously engages with the industry to explain its price assessments, Tan said. He said the organisation was confident that it reports assessments that accurately reflect current spot market supply and demand as iron ore pricing changed.
"Over the past two years, especially, Platts has increasingly reported on activity in the spot market, bringing unprecedented transparency to the iron ore market," Tan said.
Deal samples used by Platts account for 6 per cent to 9 per cent of total iron ore transactions, according to Qian Haifa of Maanshan Iron & Steel, speaking at a conference in Singapore earlier this month. Prices are decided by very small trades, which is "unreasonable and unfair to China's contract buyers", he said.